How venture capital can help to establish a startup?

Among all possible sources of finance for startups, venture capital is an option that is generally not considered for one that is in its early stages. However, that perception is changing. Venture capital firms are investing in a broad range of companies, especially technology, and also early to mid-stage profitable and unprofitable companies.
Venture capital investment usually means an equity investment in a potentially successful company (or one which has the potential to be) that is not traded publicly in the stock market. Venture capital investments are usually made by venture capital firms and high net worth individuals in a business operating as a private limited company.
After investing, VC investors can create value by addressing the missing elements that are crucial for startup success, such as marketing or sales expertise, in order to accelerate the business and achieve scale. They aim to increase the value of the underlying asset by assisting founder teams with the VC firm’s own operational experts, sometimes combining newly acquired assets with already existing assets to create a stronger whole, or refining promising products to unlock growth potential.

Stages of VC investment

Capital is provided for:

 Seed stage investment: A business idea. The capital generally support product development and market research.

 Early stage investment: Companies moving into operations and before commercial sales have occurred.

 Formative stage investment: Starting or scaling up of operations.

 Later stage investment: Further expansions and scaling up prior to the company going public.

The shares of a private company are not traded in public. Hence, value of the shares of a private company cannot be evaluated readily and is the outcome of a negotiation process between a the investors firm and the founders. To ascertain value, private equity firms use a number of valuation techniques. The selection of an appropriate valuation technique depends on the stage of investment.